Upscale retailers may pocket savings
from end to quotas
By Andria Cheng; Dec. 12, 2004;
Bloomberg News
The Polo Ralph Lauren store on Madison Avenue and 72nd Street in
New York sells $160 women's cashmere knit hats, $598 quilted coats and
$397.50 cashmere sweaters. All are made in China.
Those prices may stay at that level even after trade limits on
textiles expire Jan. 1, flooding the U.S. with Chinese-made clothing
and cutting costs for U.S. retailers by as much as 20 percent.
Upscale merchants such as Polo Ralph Lauren will keep the difference,
says Roger Farah, president and chief operating officer of the New
York-based clothier.
"The retailers that are really delivering don't have to pass on
the savings," says Michele Van Dyke, an analyst at Raleigh, N.C.-based
BB&T Asset Management.
The 148-member World Trade Organization is scrapping trade limits on
textile exports in part to try to help the economies of developing
nations.
The other beneficiaries may be Polo Ralph Lauren, Seattle-based
Nordstrom and Bebe Stores, which will use savings of 15 to 20 percent
to boost profits, stocks and product research, says Eric Beder, an
analyst at JB Hanauer in New York.
Fashion chains such as Bebe will give back less than 25 percent
of savings to customers, while specialty and department-store chains
such as Plano, Texas-based J.C. Penney may pass along 50 percent, Beder
estimates. Discounters such as Bentonville, Ark.-based Wal-Mart Stores
may distribute more than 75 percent.
At Nordstrom, spokeswoman Deniz Anders says the elimination of
quotas won't lead to any material change.
The stocks and profits of specialty retailers such as
Warrendale, Pa.-based American Eagle Outfitters and Abercrombie &
Fitch may rise after quotas are lifted, says Lawrence Creatura, who
helps manage about $2.3 billion at Pittsford, N.Y.-based Clover Capital
Management, which owns clothing-company shares.
Abercrombie & Fitch plans to keep any savings from the
lifting of quotas because the company avoids discounts or sales, even
during this holiday season, spokesman Thomas Lennox says. American
Eagle didn't respond to requests for comment.
Gap, the San Francisco-based retailer whose namesake chain
offers basic clothing such as jeans and khakis, may be at a
disadvantage, Creatura says.
"People who sell more commodity items will benefit less," says
Creatura, whose company owned 377,227 American Eagle shares as of Sept.
30. "American Eagle is branded goods. They should be able
to hold price as import costs decline."
Gap considers the elimination of import limits an "opportunity"
and expects costs in time will fall as a result, spokeswoman Tricia
Link says.